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Trump's trade war with China just ended one car manufacturer's incredible 46-month streak
President Donald Trump's trade war with China just helped end one of the auto industry's greatest streaks.
Sales of Geely cars fell in October after 46 consecutive months of year-over-year growth, according to a Wall Street Journal report.
Geely is not alone - car sales in China have fallen for the past four months year over year and are on course for an annual decline for the first time in nearly three decades, according to The Journal.
But much of China's car-making supply chain is pretty localised, and what's more, China mainly produces vehicles geared for Chinese consumption.
President Donald Trump's trade war with China just helped end one of the auto industry's hottest streaks.
Don't know the auto brand Geely? It's a bustling outfit out of China's Zhejiang province and the company Zhejiang Geely Holding Group, which owns Volvo.
From 2014 to 2017, sales of Geely had tripled, to almost 1.25 million, making Geely the No. 2 car brand in China, behind the ubiquitous Volkswagen, The Wall Street Journal reported on Wednesday. (Pretty much every taxi in China is a Volkswagen, which can lay claim to 6% market share, The Journal reported, citing data from the auto intelligence company LMC Automotive.)
But sales of Geely cars fell in October - a 10% year-over-year decline - ending 46 consecutive months of year-over-year growth, according to The Journal.
As the holidays loom, the trade relationship between the US and China is still testy. The two countries have so far imposed tariffs covering roughly $US360 billion worth of merchandise traded between them. And that has implications for each major industry and the players in it.
Geely isn't the only auto company suffering - car sales in China have fallen for the past four months year over year and are on course for an annual decline for the first time in nearly three decades, according to The Journal.
Following China's decadelong love affair with four wheels, big-name auto producers are in uncharted territory.
Sales of Ford's passenger cars in China have collapsed by 45% in the first nine months of the year. The people who bought Jeep to China, Fiat Chrysler, have seen sales fall by 35%, and General Motors' Buick sales were down 9%, The Journal said, citing LMC Automotive data.
Meanwhile, China's luxury-car market is rolling along. Cadillac sales are up 30% in the first nine months of the year, while BMW, Audi, and Mercedes-Benz are up 10% to 13%, The Journal reported.
In a sign of China's wealth gap, the auto dream has begun to spin away from China's aspirational new middle class. But at the same time, the number-plate-less black cars with tinted one-way mirrors that glide through second-tier cities like Chongqing and Chengdu are still everywhere.
But it's not curtains for Geely. Though investors have fretted as its shares, listed in Hong Kong, have shed about 50% since this time last year, so have shares of several top-shelf names listed in China, as the country grapples with an uncertain economy. Bloomberg reported last month that the Shanghai Composite was down 24% in the past 12 months.
Geely's sales were defiant in the interim, up 27% year-over-year from January to September, according to The Journal. October is where the winning streak came crunching to a halt.
'Generally weaker demand'
A Geely spokesman told The Journal of "generally weaker demand for vehicles ... across different regions."
The trade war has surprised and deflated Chinese consumers used to hearty, consistently good economic news. For a long time, money has been pretty easy to come by, and if banks pull back on lending as they have done - regardless of instructions not to - a shadow-lending system has always been close by for the intrepid.
Those deep pools have started to look a lot drier. Following an explosion in nonbank, micro-, and peer-to-peer lending, officials have sought to clamp down on informal lines of credit for everyday Chinese consumers.
Nevertheless, a Macquarie Group executive told The Journal there was ample room for Chinese auto sales to continue their trajectory and rise to 30 million to 35 million from nearly 29 million last year.
But of course, there is still a trade war to consider
Chinese finished vehicles exported to the US represented only 0.3% of China's total exports last year, worth $US7.2 billion,according to the US International Trade Commission.
However, the US is by far the largest destination of Chinese auto-parts exports, so any tinkering with China's access to that market would be tough for China-based exporters to swallow.
According to Economist Intelligence Unit figures, China accounted for almost 20% of US finished-vehicle exports by value last year, or about $US10.3 billion worth of cars.
Chinese tariffs on US auto imports could exert downward pressure on automakers that export their finished product to China from the US, including BMW and Mercedes-Benz (both German and very popular).
Most of these shipments are in the luxury sector, however, and the big-name US automakers selling to China's mass market, like GM and Ford, produce their Chinese units overwhelmingly via their local joint ventures in China.
BMW and Mercedes-Benz have operations in nearby Thailand, and in the case of a deterioration in the US-China trade dispute, they're likely to ramp up their local output to support shipments to China, the EIU suggested.
Auto-parts exports from the US are likewise less exposed to the US-China trade dispute, as they're shipped mostly to Canada or Mexico; shipments to China accounted for only 5% of the total in 2017, the EIU added.
Other trade concerns
For Asian producers in the auto sector more generally, there are bigger concerns than the US-China trade war, such as the tariffs on steel and aluminium imposed by the US in earlier this year.
Also on the horizon is a Section 232 report from the US Department of Commerce that could very well cite national security concerns to slap tariffs on all vehicles and auto parts exported to the US.
Geely, though its run came to a sudden end, can relax for a while - it holds a substantial 9.69% share of Daimler AG, Mercedes-Benz's parent company, The Journal reported. And Volvo sales were up one-third in China year-over-year from January to September.
Geely has a bunch of new models in its garage outside Shanghai, and that should be more than enough to get it back in the winner's circle, the Geely spokesman told The Journal.
